GIFT  OF 


GITT 
81  f*t 


INCOME  OF  THE  NATION 


AND 


DIVIDENDS  OF  THE  MASSES 


BY 


VICTOR    MORAWETZ. 


Wfrj^l   %f  '§/"?"" 


(Reprinted  from  the  New  York  Sunday  Sun 
of  December  21,  1913.) 


•rf 


INCOME  OF   THE   NATION 

AND 

DIVIDENDS   OF   THE   MASSES. 


From  the  beginning  of  history  to  the  present  day 
the  great  majority  of  mankind  have  had  to  earn  their 
daily  bread  by  the  sweat  of  the  brow.  Modern  inven- 
tions, machinery  and  labor-saving  devices  have  provided 
cheap  power  and  have  increased  enormously  the  pro- 
ductivity of  labor  employed  in  manufacturing  and  in 
other  industrial  pursuits.  But  they  have  not  in  an 
equal  degree  increased  the  yield  of  labor  applied  to 
the  raising  of  grain,  cattle,  sheep,  cotton  and  other 
produce  of  the  farm,  constituting  the  principal  raw  ma- 
terials of  food  and  clothing.  A  large  part  of  the  labor 
saved  through  inventions  and  machinery  and  various 
devices  for  the  lessening  of  labor  has  been  absorbed  in 
new  activities  rendered  necessary  by  increased  density 
of  population,  by  a  state  of  civilization  more  compli- 
cated, if  not  higher,  and  by  changed  standards  of  living. 
To  maintain  a  civilized  community  at  the  present  day 
it  is  necessary  to  provide  many  things  that  were  not 
required  before  the  great  industrial  development  of 
modern  times. 

The  labor  required  to  cultivate  the  soil  and  to  pro- 
duce grain,  cattle,  sheep,  cotton,  lumber  and  other  raw 
materials  of  food,  clothing  and  housing  is  but  a  minor 

271273 


part  of  the  labor  required  to  support  a  civilized  com- 
munity. It  is  necessary  to  construct  and  to  operate 
railways  and  telegraph  lines,  ships,  canals,  highways 
and  other  means  of  transportation  and  communication  ; 
to  raise  coal,  ores,  oil  and  other  minerals  out  of  the 
earth ;  to  build  and  to  operate  manufacturing  plants 
and  machinery  ;  to  make,  by  hand,  clothing  and  other 
articles  that  machinery  cannot  produce  in  finished 
form ;  to  carry  on  numerous  mercantile  establishments 
and  shops  for  the  distribution  of  merchandise  ;  to  estab- 
lish schools,  hospitals,  courts  and  printing  presses  ;  to 
provide  the  services  of  teachers,  doctors,  lawyers, 
engineers  and  other  professional  men ;  to  build  cities 
and  towns  and  to  supply  them  with  light,  water  and 
fuel.  Furthermore,  it  is  necessary  to  maintain  national, 
state  and  municipal  governments  with  an  adequate 
army,  navy  and  police,  and  a  multitude  of  other  govern- 
mental activities.  All  these  things  and  many  others 
are  necessary. 

In  the  United  States  a  vast  amount  of  labor  must 
be  expended  to  provide  additional  permanent  works 
and  instruments  of  production  and  distribution  required 
by  reason  of  the  rapid  increase  of  population  and  the 
rapid  development  of  the  country.  It  has  been  as- 
serted by  eminent  authority  that  an  average  annual 
expenditure  of  approximately  $1,000,000,000  is  needed 
to  supply  adequate  rail  way  facilities.  Much  larger  sums 
must  be  expended  in  constructing  additional  dwelling 
houses,  office  and  business  buildings,  factories,  streets, 
highways  and  other  improvements  of  cities  and  farms. 
All  these  permanent  works  and  instruments  of  produc- 


tion  and  distribution  represent  savings  of  the  produce 
of  labor ;  but  these  savings  are  not  optional.  They 
are  essential  to  the  life  of  the  community. 

Nearly  all  able-bodied  men  in  the  United  States  are 
engaged  in  work  of  some  kind.  Very  few  are  wholly 
idle.  A  large  majority  are  engaged  in  work  necessary 
to  the  existence  of  the  community.  A  comparatively 
small  minority  are  engaged  in  the  production  and 
supply  of  luxuries,  such  as  costly  houses,  fine  clothing, 
works  of  art,  jewels,  amusements  and  leisure  to  be  used 
or  enjoyed  only  by  the  rich:  In  modern  times,  as  in 
the  past,  the  hard  labor  of  a  large  majority  of  the  able- 
bodied  members  of  the  community  is  necessary  to  main- 
tain the  community  and  to  supply  it  with  the  neces- 
saries of  life. 

Division  of  labor  and  distribution  of  wealth. 

In  every  community  labor  is  divided  into  many 
separate  occupations  and  activities.  Few  of  the  people 
by  their  own  labor  produce  more  than  a  small  portion 
of  the  things  necessary  to  their  subsistence  and  many 
produce  none  of  the  things  they  use  or  consume. 
Even  the  food,  clothing  and  housing  of  the  poor  are 
the  produce  of  many  hands  and  are  gathered  together 
from  many  places.  Each  worker  contributes  to  the 
support  of  all  the  people,  but  each  depends  for 
his  own  support  and  security  upon  the  labor  of 
countless  others  and  upon  the  industrial,  commercial 
and  political  organization  of  the  entire  community. 

Though  the  wealth  and  income  of  each  member  of 
the  community  are  created  in  great  measure  by  the 


labor  and  capital  of  all  the  people  acting  in  combination 
or  cooperation,  it  is  an  undeniable  fact  that  neither 
wealth  nor  income  is  distributed  among  the  people 
evenly,  or  in  proportion  to  their  several  contributions 
of  labor  and  capital.  From  the  beginning  of  history  to 
the  present  day  some  of  the  people  have  received  and 
have  enjoyed  more  than  they  created  by  their  own  labor, 
more  than  they  contributed  to  the  aggregate  production 
and  more  than  they  could  claim  on  any  plea  of  merit  or 
justice.  The  great  majority  have  had  to  toil  for  the  bare 
necessaries  of  life  while  a  small  minority  have  consumed 
large  incomes  in  luxury  and  display. 

Until  modern  times  the  laboring  masses  were  prac- 
tically a  subject  class  denied  participation  in  the  gov- 
ernment, and  their  political  struggles  were  principally 
to  obtain  freedom  and  political  equality.  Through  the 
institution  of  democratic  forms  of  government  with 
equal  manhood  suffrage  the  masses  have  obtained 
power  to  control  the  government.  However,  only  within 
the  last  twenty  years  have  they  begun  fully  to  realize 
their  power  and  to  unite  in  forming  effective  political 
organizations  for  the  purpose  of  carrying  out  a 
common  program  or  policy.  For  the  first  time  in 
history  truly  democratic  government  is  about  to 
be  tried  on  a  large  scale.  At  the  present 
day  in  every  civilized  country  there  exists  a 
strong  movement  of  the  laboring  masses  to  improve 
their  material  condition  by  means  of  legislation.  That 
there  is  no  easy  way  of  increasing  the  material  welfare 
of  the  masses  is  evident  from  the  fact  that,  notwith- 
standing thousands  of  years  of  endeavor,  slow  progress 


has  been  made  toward  the  desired  end.  This  article  is 
the  result  of  an  attempt  to  indicate  briefly  some  of  the 
things  that  can  be  done  and  some  of  the  things  that 
cannot  be  done  to  increase  the  income  of  the  laboring 
masses.  Only  the  economic  aspects  of  the  problem  will 
be  considered. 

Distribution  of  instruments  of  production. 

Under  no  plan  of  distribution  can  the  entire  com- 
munity consume  or  enjoy  more  than  the  necessaries  of 
life  and  the  luxuries  produced  by  the  labor  of  the  people, 
or  imported  from  abroad  in  exchange  for  things  produced 
by  their  labor.  Lands,  manufacturing  plants,  railways 
and  other  productive  properties  cannot  be  consumed  or 
enjoyed  and  are  only  instruments  for  the  production, 
distribution,  or  supply  of  necessaries  of  life  and  luxuries 
to  be  consumed  or  enjoyed.  A  redistribution  or  change 
of  ownership  of  the  lands  and  other  natural  resources 
and  of  the  accumulated  wealth  of  the  nation  would 
not  increase  the  aggregate  amount  of  necessaries 
of  life  and  luxuries  available  for  consumption  or 
enjoyment,  nor  would  it  diminish  the  labor  re- 
quired for  their  production.  The  hard  labor  of  a 
large  majority  of  the  able-bodied  members  of  the 
community  would  still  be  necessary  to  maintain  the 
community  and  to  supply  it  with  the  necessaries 
of  life.  Furthermore,  no  redistribution  could  avoid  the 
necessity  of  painful  toil  on  the  part  of  some  of  the 
people.  Under  any  plan  of  distribution  some  of  the 
people  must  clean  the  sewers,  must  work  in  the  mines, 
must  feed  the  furnaces  and  toil  in  the  heat  and  cold, 


and  must  perform  all  other  disagreeable  and  dangerous 
services  necessary  to  maintain  the  community. 

Distribution  of  luxuries. 

If  the  fine  houses,  fine  clothing  and  other  costly 
luxuries  now  enjoyed  by  the  rich  were  distributed 
among  all  the  people,  the  share  received  by  each  per- 
son would  be  small  and  few  of  the  luxuries  received 
upon  such  a  distribution  could  be  used  or  enjoyed. 
To  live  in  fine  houses,  to  wear  fine  clothes  and  to  enjoy 
the  luxuries  of  the  rich  involves  the  enjoyment  of 
leisure  and  the  employment  of  servants  and  most  of 
the  other  expenditures  of  the  rich.  It  involves  also 
the  existence  of  a  social  class  similarly  situated  and 
with  similar  opportunities  for  display  and  pleasure. 
To  the  great  majority  who,  under  any  practicable 
economic  conditions,  must  labor  hard  to  produce 
the  necessaries  of  life  and  necessary  instruments  of 
future  production,  fine  houses  and  fine  clothing  would 
be  less  useful  than  the  simple  homes  and  the  more 
serviceable  clothing  of  the  relatively  poor.  An  even  dis- 
tribution of  the  luxuries  now  enjoyed  by  the  rich  would 
be  of  little  benefit  to  the  masses  unless  there  were  rich 
persons  who  could  buy  them  and  use  them  and  unless, 
also,  there  were  an  increased  supply  of  necessaries  of 
life  and  of  simple  luxuries  that  could  be  purchased  with 
the  proceeds.  If  there  were  no  rich,  and  if  no  family 
had  an  income  in  excess  of  the  small  income  that  would 
be  received  by  each  upon  an  equal  distribution,  most  of 
the  things  that  are  classed  as  luxuries,  constituting  a 
considerable  part  of  the  accumulated  wealth  of  the 
world,  would  cease  to  be  of  any  use  or  value. 


Distribution  of  necessaries  of  life. 

Under  existing  economic  conditions  there  is  no  sub- 
stantial surplus  of  food,  clothing,  housing  and  other 
necessaries  of  life  available  for  distribution  among  the 
masses.  The  surplus  of  cotton,  foodstuffs  and  other 
articles  exported  is  not  available  for  distribution  as  it 
must  be  used  to  pay  for  other  articles  imported  and  to 
discharge  obligations  incurred  to  foreign  nations.  A 
limited  reserve  of  food,  of  clothing  and  of  some  other 
necessaries  is  stored  or  kept  on  hand  to  provide  for  ad- 
vantageous distribution  and  to  meet  the  variations  of 
seasons,  but  this  reserve  remains  a  practically  constant 
factor  and  cannot  be  dispensed  with.  The  rich,  or  the 
comparatively  rich,  do  not  consume  much  more  than 
their  average  share  of  the  mere  necessaries  of  life,  and 
the  excess  consumed  by  them  would  furnish  only  a 
comparatively  small  fund  for  distribution  among 
the  entire  population.  The  greater  part  of  the  con- 
sumption of  the  rich  consists  of  luxuries  which 
would  not  be  available  for  even  distribution.  Upon  an 
even  distribution  of  all  the  necessaries  of  life  pro- 
duced under  existing  conditions  a  majority  of  the  people 
would  receive  little  more  than  they  now  receive.  Each 
head  of  a  family  might  receive  a  little  more  than  is  re- 
ceived at  the  present  day  by  the  average  day  laborer, 
but  probably  not  as  much  as  is  received  by  the  average 
skilled  workman. 

For  the  foregoing  reasons  it  follows  that  to  increase 
substantially  the  food  and  clothing  of  a  majority  of  the 
people,  to  give  them  better  housing  and,  generally  to 
add  materially  to  their  supply  of  necessaries  of  life 


8 

and  physical  comforts  it  would  be  necessary  first  to 
increase  the  aggregate  supply  of  food,  clothing,  of  im- 
proved housing  and  of  other  things  available  for  distri- 
bution. 

Wages  and  prices— Labor  unions. 

The  produce  of  labor  and  capital  in  the  first  instance 
is  divided  among  those  who  furnish  the  labor  (including 
every  kind  of  mental  or  physical  work  or  services)  and 
those  who  furnish  the  capital,  or  the  instruments  of 
production  and  distribution.  The  division  is  effected 
by  means  of  money  transactions,  the  respective  shares  of 
those  wko  furnish  labor  and  of  those  who  furnish  capital 
being  adjusted  through  the  wages  of  labor,  the  profits  of 
capital  and  the  prices  of  the  things  produced.  The  wages 
of  labor  and  the  profits  of  capital,  in  effect,  are  drafts  en- 
titling the  recipients  to  draw  at  current  prices  upon  the 
aggregate  wealth  and  produce  of  the  nation.  The  share 
received  by  those  who  furnish  the  labor  of  production 
may  be  increased  by  an  increase  of  wages  if  there  be  no 
equivalent  increase  of  prices  of  the  things  purchased  by 
them,  or  by  a  reduction  of  prices  if  there  be  no  equiva- 
lent reduction  of  wages.  Conversely,  it  may  be  dimin- 
ished by  a  reduction  of  wages  without  an  equivalent  re- 
duction of  prices,  or  by  an  increase  of  prices  without  an 
equivalent  increase  of  wages. 

It  should  be  observed,  however,  that  those  who 
furnish  the  capital  employed  in  production  commonly 
furnish  also  an  essential  part  of  the  labor  of  production, 
namely,  that  of  organization  and  management.  There- 
fore, the  sums  received  by  them  as  profits  consist  partly 


of  earnings  or  produce  of  their  labor.  Labor  commonly 
is  hired  by  the  owners  of  capital  at  fixed  wages  or  com- 
pensation, but  there  are  numerous  cases  in  which 
laborers  supply  their  own  capital,  or  hire  it  from  others. 
Thus  farmers  own  the  land  they  cultivate,  or  rent  it 
from  others,  and  often  they  employ  other  laborers  and 
borrow  capital  from  the  banks.  Similarly,  artisans 
often  work  for  their  own  account,  or  by  the  piece,  and 
use  their  own  workshops  and  tools.  In  these  cases  they 
receive  the  produce  of  their  labor  and  capital  combined, 
less  the  rent  or  interest  which  they  must  pay  for  bor- 
rowed capital. 

Laborers  who  do  not  sell  their  labor  for  fixed  wages 
but  work  for  their  own  account  receive  for  their  labor 
the  net  value  of  their  produce  and  no  more.  Unless 
competition  is  destroyed  by  monopoly,  the  wages 
paid  by  the  owners  of  capital  are  fixed  prin- 
cipally by  the  supply  of  similar  labor  and 
the  demand  for  it,  subject,  however,  to  these 
limitations  :  except  temporararily,  the  wages  of  labor 
cannot  exceed  the  net  value  of  its  produce,  after  de- 
ducting all  other  costs  of  production,  including  taxes 
and  the  rent,  interest  or  profits  payable  for  the  use  of 
necessary  capital ;  but  wages  cannot  long  be  less  than 
the  necessary  cost  of  subsistence  of  the  laborers,  or  less 
than  they  can  obtain  in  other  employment. 

The  profits  of  capital  depend  upon  costs  of  produc- 
tion and  the  value  of  the  produce,  which,  in  case  of 
articles  produced  for  sale,  is  determined  by  the  price  at 
which  they  can  be  sold.  The  rent  or  the  interest  pay- 
able for  borrowed  capital  is  fixed  by  supply  and  de- 


10 

mand;  but,  of  course,  under  normal  conditions  em- 
ployers of  capital  cannot  afford  to  borrow  unless  their 
profits  derived  from  the  borrowed  capital  exceed  the 
rent  or  the  interest  payable  for  its  use. 

Prices  of  commodities  in  great  measure  are  fixed  by 
supply  and  demand,  but,  except  temporarily,  they  can- 
not be  less  than  all  costs,  including  wages  and  taxes, 
entering  directly  or  indirectly  into  their  production  and 
distribution,  together  with  some  profit  for  the  use  of 
the  capital  employed.  When  costs  of  production  or 
distribution  are  increased  by  an  increase  of  wages  or 
other  cause,  manufacturers  and  dealers  raise  their  prices, 
unless  checked  by  domestic  or  foreign  competition  ;  but 
if,  owing  to  competition  or  other  cause,  they  are  unable 
to  raise  prices  sufficiently  to  yield  a  profit  satis- 
factory to  themselves,  they  stop  production  or  dis- 
tribution. Hence  an  increase  of  the  wages  or 
cost  of  labor  usually  must  be  paid  by  consumers.  A 
general  increase  of  the  wages  of  all  labor  would  cause 
an  equivalent  increase  of  the  price  of  nearly  every  pro- 
duct of  labor  and  a  general  increase  of  the  cost  of  living. 
The  increased  wages  of  the  laborers  then  would  not 
buy  more  than  did  their  former  wages  and  they  would 
be  no  better  off  than  before  the  increase.  For  this  rea- 
son the  economic  welfare  of  the  masses  in  the  aggre- 
gate cannot  be  materially  improved  by  the  simple  ex- 
pedient of  raising  generally  the  wages  of  labor. 

The  labor  unions  constitute  an  important  and  far- 
reaching  movement  for  the  betterment  of  the  economic 
condition  of  certain  classes  of  able-bodied,  independent 
and  self-respecting  members  of  the  community.  Un- 


11 

doubtedly  they  have  been  of  benefit  to  their  members, 
and,  in  so  far  as  they  have  increased  the  welfare  of  a 
considerable  part  of  the  community,  they  have  been 
beneficial  to  the  commnnity  at  large.  However,  it 
would  be  idle  to  ignore  the  fact  that  neither  the  purpose 
nor  the  effect  of  the  labor  unions  has  been  to  increase 
the  aggregate  produce  of  the  community,  or  to  reduce 
the  cost  of  living,  or  to  increase  the  wages  or  income  of 
the  great  majority  of  the  people.  On  the  contrary,  the 
purpose  of  each  labor  union  is  to  increase  the  wages  of 
its  members  by  creating  a  monopoly  of  the  class  of  labor 
which  it  can  supply,  and  the  necessary  effect  is  to  raise 
the  prices  of  the  products  of  such  labor  and  thus  to 
diminish  the  share  received  by  the  rest  of  the  com- 
munity who  are  not  in  a  position  to  obtain  a  like 
increase  of  their  wages  or  money  incomes. 
This  was  illustrated  by  the  result  of  the  great 
strike  of  anthracite  coal  miners  not  many  years  ago. 
When  the  cost  of  mining  coal  was  increased  by  the 
increased  wages  and  other  benefits  awarded  to  the 
miners,  the  increased  cost  of  production  immediately 
was  added  to  the  price  of  anthracite  coal  to  be  paid  by 
every  household  among  the  poor  and  rich  alike. 

So  far  as  strikes  or  requirements  of  labor  unions 
diminish  the  volume  or  the  efficiency  of  labor,  or  cause 
a  loss  of  markets  by  reason  of  increased  costs  of  pro- 
duction, their  effect  is  to  diminish  the  aggregate 
produce  of  the  nation  representing  the  wages  and 
income  of  all  the  people.  So  far  as  costs  of  production 
and  the  prices  of  articles  produced  by  union  labor  are 
raised  by  increased  wages,  by  reductions  of  hours  of 


12 

work,  or  by  "  making  work,"  the  advantages  gained  by 
union  laborers  must  be  paid  for  by  all  consumers, 
including  the  union  laborers  themselves,  in  proportion 
to  their  consumption  of  these  articles.  The  union 
laborers  themselves  can  retain  the  advantages  gained 
by  them  only  so  long  as  the  great  majority  of  other 
laborers  and  farmers  do  not  obtain  similar  advantages. 
Owing  to  the  increase  of  the  wages  of  farm  labor 
and  to  the  fact  that  population  has  increased  faster 
than  the  volume  of  agricultural  products,  prices  of 
agricultural  products  have  risen  substantially.  To 
the  extent  that  union  laborers  have  had  to  pay 
higher  prices  for  the  products  of  agriculture,  they 
have  lost  the  benefit  of  their  increase  of  wages,  and 
to  the  extent  that  the  farming  classes  have  had  to 
pay  higher  prices  for  the  products  of  union  labor,  they 
have  lost  the  benefit  of  the  increased  prices  of  agricul- 
tural products  ;  but  the  great  body  of  unskilled  labor- 
ers, professional  men,  clerks  and  other  workers  who 
have  not  been  able  to  obtain  an  increase  of  their  wages, 
and  all  those  persons  who  have  fixed  money  incomes 
from  investments  have  had  to  pay  the  increased  prices 
of  the  products  of  union  labor  as  well  as  of  the  products 
of  agriculture,  without  obtaining  any  compensating 
increase  of  their  own  incomes. 

Capital. 

In  considering  the  aggregate  national  wealth  or 
capital  bonds,  mortgages,  notes,  accounts  receivable 
and  other  credits  must  be  disregarded,  unless  they 
represent  claims  against  foreigners.  Credits  may 


13 

be  regarded  as  wealth  of  their  individual  owners  be- 
cause conferring  the  power  to  obtain  from  others  prop- 
erty of  a  money  value  equivalent  to  the  principal  and 
interest  received  ;  but,  as  every  credit  involves  an  equiv- 
alent indebtedness  or  obligation,  it  is  obvious  that 
credits  of  individuals  or  of  corporations  against  other  in- 
dividuals or  corporations  in  the  same  country  do  not  add 
to  the  aggregate  wealth  of  the  nation.  Of  course,  shares 
in  companies  represent  merely  interests  in  the  property 
of  these  companies  and  are  not  additional  wealth.  The 
portion  of  the  currency  consisting  of  gold  and  silver, 
which  have  intrinsic  value,  is  part  of  the  national 
wealth  ;  but  bank  notes  and  government  notes,  like 
other  credits,  are  set  off  by  an  equivalent  indebtedness 
and  do  not  increase  the  aggregate  wealth. 

Comparatively,  only  a  small  part  of  the  aggregate 
wealth  or  capital  of  a  nation  consists  of  consumable  nec- 
essaries of  life  and  luxuries.  The  greater  part  consists 
of  lands  and  their  improvements,  railways,  manufact- 
uring plants,  business  buildings  and  other  things  that 
cannot  be  consumed  or  enjoyed  by  the  owners,  but  are 
the  instruments  or  means  of  obtaining  things  that  can 
be  consumed  or  enjoyed.  Furthermore,  an  important 
part  of  the  accumulated  wealth  or  capital  of  every  civil- 
ized nation  is  intangible  and  consists  of  the  education 
of  the  people,  the  training  and  experience  of  artisans, 
business  men  and  intellectual  workers,  and  the  organi- 
zation of  business  and  other  activities  necessary  to  the 
existence  and  prosperity  of  the  nation.  All  this  tangi- 
ble and  intangible  wealth  or  capital,  except  only  land 
and  natural  resources,  is  the  produce  of  labor  and  capi- 


14 

tal.  It  is  a  surplus  produced  by  the  people  over  and 
above  the  necessaries  of  life  and  luxuries  consumed  or 
enjoyed  by  them,  and  it  represents  profits  of  capital  and 
wages  of  labor,  not  consumed  or  enjoyed  by  the  recip- 
ients, but  saved  and  accumulated  for  future  use. 

Capital  is  as  necessary  to  production  as  is  labor ; 
and  it  is  rare  that  production  can  be  increased  without 
the  use  of  increased  capital.  An  enormous  amount 
of  labor  and  capital  must  be  expended  in  producing 
necessary  instruments  of  production  and  distribution 
and  other  tangible  and  intangible  capital.  To  the 
extent  that  such  instruments  of  production  and  distri- 
bution and  other  capital  are  required,  the  production 
of  a  surplus  over  and  above  the  necessaries  of  life 
and  luxuries  consumed  or  enjoyed  by  the  people  is  a 
necessary  charge  upon  them.  No  redistribution  of 
capital,  or  readjustment  of  profits  or  of  wages,  and 
no  transfer  of  the  ownership  of  capital  from  individuals 
to  the  State  could  relieve  the  people  from  the  necessity 
of  producing  by  their  labor  not  only  all  the  necessaries 
of  life  and  luxuries  consumed  or  enjoyed  by  them,  but 
also  all  the  instruments  of  production  and  distribution 
and  all  other  tangible  and  intangible  capital  required 
for  future  use. 

Only  that  surplus  of  the  aggregate  produce  which, 
under  existing  conditions,  consists  of  luxuries  con- 
sumed or  enjoyed  by  the  rich  could  be  taken  away  from 
the  rich  and  be  given  to  the  masses  to  be  consumed  or 
enjoyed  by  them.  This  surplus,  however,  would  exist 
only  if  the  aggregate  produce  of  the  nation,  and  conse- 
quently the  labor  of  production,  were  not  diminished; 


15 

and  it  would  be  available  for  distribution  among  the 
masses  only  if  the  labor  and  capital  now  applied  to  the 
production  of  the  luxuries  of  the  rich  were  shifted  to 
other  production  and  were  applied  in  such  manner  as  to 
increase  the  necessaries  of  life  and  the  luxuries  of  the 
-masses. 

Interest  of  the  community  in  the  use  of  capital  and 
labor. 

As  a  rule,  property  or  services  can  be  exchanged 
for  money,  or  for  a  credit  expressed  in  money, 
and  the  money  or  credit  can  be  exchanged,  at  will, 
for  property  or  services,  whether  necessaries  of 
life,  luxuries  or  productive  property.  For  this 
reason  capital,  profits  and  wages  commonly  are 
expressed  in  terms  of  money ;  but  it  is  important  to 
bear  in  mind  that  money  is  only  a  medium  of  exchange 
and  a  measure  of  the  exchange  value  of  property  or 
services,  that  capital  really  represents  property,  that 
profits  and  wages  really  represent  the  produce  obtained 
by  means  of  labor  and  the  use  of  property,  and  that 
ultimately  credits  resolve  themselves  into  interests  in 
or  claims  against  the  property  or  income  of  others. 
An  expenditure  of  money  or  of  capital  realty  means  a 
transfer  of  property,  or  of  an  interest  therein.  Such 
transfer  may  involve  merely  an  exchange  of  property 
for  other  property  already  in  existence,  or  it  may  be 
made  in  payment  for  labor  applied  to  the  production 
of  luxuries,  or  of  necessaries  of  life,  or  of  additional 
instruments  of  production  and  distribution. 

The -community  is   not  affected  directlylby  a  mere 


16 

change  of  ownership  of  existing  property ;  but  the 
community  has  a  stibstantial  and  lasting  interest  in 
the  use  of  capital  in  employing  labor.  The  applica- 
tion of  capital  and  labor  to  the  production  of  luxuries, 
such  as  fine  houses,  fine  clothing,  amusements  and 
leisure  to  be  enjoyed  by  the  rich,  would  diminish  the 
supply  of  capital  and  labor  which  otherwise  would  be 
available  for  the  production  of  things  that  could  be 
consumed  or  enjoyed  by  the  masses.  On  the  other 
hand,  the  application  of  capital  and  labor  to  the  pro- 
duction of  additional  necessaries  of  life,  or  of  addi- 
tional instruments  for  their  production  or  distribution, 
would  increase  the  present  or  the  future  supply  of 
things  available  for  distribution  among  the  masses  and 
would  tend  to  diminish  the  cost  of  these  things. 

It  should  be  observed  that  although  the  use  of  cap- 
ital in  buying  existing  property  from  others  would  not 
directly  affect  the  interests  of  the  community,  such  pur- 
chases may  affect  the  community  indirectly  by  stimu- 
lating the  production  of  more  property  of  the  same 
class.  Thus,  the  purchase  of  existing  articles  of  luxury 
usually  would  cause  the  production  of  more  articles  of 
the  same  class  to  supply  the  demand  therefor.  Though 
capital  gives  to  the  owner  the  power  to  direct  the  applica- 
tion of  labor,  the  direction  is  determined  largely  by  the  de- 
mands of  consumers. 

The  consumption  of  luxuries  does  not  vary  among 
the  people  according  to  their  wealth  or  their  incomes. 
Some  persons  consume  in  luxury  not  only  their  in- 
comes, but  also  their  capital.  Others  consume  less 
than  their  incomes  and  save  the  remainder.  As  a  rule, 


17 

the  owners  of  small  fortunes  consume  proportionately 
larger  snares  of  their  incomes  than  do  the  owners  of 
large  fortunes.  Thus  the  owner  of  a  fortune  of  $50,- 
000,000  with  an  annual  income  of  $3,000,000  probably 
would  consume  less  than  $500,000  (not  including  pur- 
chases of  property  reserved  for  future  use)  while  at 
least  $2,500,000  of  his  income  would  be  saved  and 
would  be  used,  directly  or  indirectly,  in  creating  addi- 
tional permanent  works  and  instruments  of  future  pro- 
duction and  distribution.  But  if  the  same  fortune  were 
distributed  among  100  people,  each  owning  $500,000  and 
receiving  an  income  of  $30,000,  probably  the  greater 
part  of  their  aggregate  income  would  be  consumed 
by  them  in  luxuries  and  necessaries  of  life  and  a 
greater  number  of  idlers  would  be  supported  by  the  labor 
of  the  masses.  If  all  the  capital  of  the  nation  were 
vested  in  one  man,  he  could  consume  only  a  negligible 
share  of  the  aggregate  produce,  and  the  result  would  be 
practically  the  same  as  though  all  the  capital  were 
vested  in  an  autocratic  government.  In  fact,  the  share 
of  the  aggregate  produce  consumed  by  the  individual 
owner  probably  would  be  less  than  the  share  consumed 
or  wasted  under  government  ownership  and  manage- 
ment. For  these  reasons  the  existence  of  very  large 
fortunes,  apart  from  the  methods  by  which  they  were 
accumulated,  is  not  economically  prejudical  to  the 
masses.  There  are  objections  to  very  large  fortunes, 
but  these  objections  are  social  and  political  rather  than 
economic. 


18 

Profits  of  capital. 

Unless  competitive  conditions  are  destroyed  by  the 
creation  of  monopolies  or  otherwise,  profits  of  capital 
and  rates  of  interest,  as  well  as  wages  of  labor,  are  fixed 
in  great  measure  by  supply  and  demand.  The  profit 
or  the  interest  payable  for  the  use  of  capital  that  can  be 
diverted  by  its  owners  "to  other  uses  cannot  be  controlled 
by  law,  or  by  coercion  in  any  form.  Attempts  to  reduce 
the  profit  or  the  interest  charged  by  the  owners  of  free 
capital  below  the  rates  that  can  be  obtained  at  home  or 
abroad  defeat  themselves  and  are  unavailing.  History 
shows  that  attempts  to  regulate  by  law  the  rate  of  in- 
terest on  loans  (except  loans  at  exorbitant  rates  to 
the  ignorant  or  helpless)  have  simply  resulted 
in  shifting  capital  and  in  depriving  borrowers  of 
accommodation  whenever  lenders  are  unwilling  to  grant 
credit  at  the  statutory  rate.  History  shows  also  that 
attempts  to  regulate  by  statute  the  prices  of  commodi- 
ties produced  by  free  capital  and  free  labor  have  failed, 
except  temporarily,  to  accomplish  their  purpose,  and 
generally  have  resulted  in  diminished  production  and 
in  diminished  wages. 

The  profits  of  capital  that  is  fixed  and  that  cannot 
be  withdrawn  by  the  owners  and  diverted  to  other  uses, 
such  as  railways,  manufacturing  plants  and  other  per- 
manent works,  may  be  restricted  by  statutory  regula- 
tion of  rates  or  prices;  but  a  reduction  of  the  profits  of 
such  fixed  capital  to  a  rate  which  is  unsatisfactory  to  the 
owners,  or  lower  than  the  rate  obtainable  for  free  capi- 
tal, would  discourage  the  investment  of  additional  capi- 
tal in  the  same  enterprise,  or  in  enterprises  of  a  similar 


19 

character,  and  thus  it  would  check  increase  of  produc- 
tion. 

The  available  capital  of  a  nation  can  be  increased 
only  by  saving  and  accumulating  part  of  the  profits  of 
capital  and  of  the  wages  of  labor  in  the  form  of  addi- 
tional instruments  of  production  and  distribution,  or  of 
other  useful  property.  The  only  practicable  way  of  in- 
ducing such  saving  and  accumulation  of  capital  is  to 
allow  the  owners  of  capital  to  obtain  from  its  use  a  satis- 
factory profit.  The  only  practicable  way  of  reducing 
the  rate  of  profit  necessary  to  ^induce  such  saving  and 
accumulation  of  capital  is  by  increasing  the  avail- 
able supply  of  capital,  by  keeping  open  competitive 
conditions  in  the  ownership  and  control  of 
natural  resources  and  in  production,  distri- 
bution and  trade,  and  by  increasing  confidence 
in  the  security  of  investments  and  in  the  stability  of 
profits.  No  benefit  would  come  to  the  masses  from  any 
reduction  of  the  profits  of  capital  resulting  in  a  lessen- 
ing of  its  supply. 

Monopolies. 

By  destroying  competitive  conditions  in  the  owner- 
ship and  use  of  natural  resources,  or  in  production,  dis- 
tribution or  trade,  the  owners  of  capital  can  raise  prices 
and  can  increase  their  profits  at  the  expense  of  the  com- 
munity. In  recent  years  it  has  been  contended  that  the 
interest  of  the  community  can  best  be  served  by  per- 
mitting the  creation  of  monopolies  subject  to  govern- 
mental regulation  of  the  industries  that  are  monopolized, 
including  the  regulation  of  prices.  The  principal 


20 

grounds  for  this  contention  are  that  in  many  cases 
competition  results  in  fluctuating  prices,  in  the  destruc- 
tion of  weak  or  inefficient  competitors  and  in  waste 
through  unnecessary  duplication  of  plants  and  selling 
agencies  and  through  costly  competitive  advertising. 

Though  combinations  lessening  to  some  degree  com- 
petition in  production  and  in  trade  may  be  necessary  to 
secure  economy  and  efficiency,  combinations  destructive 
of  reasonably  competitive  conditions  or  effecting  prac- 
tical monopolies  are  not  necessary.  On  the  contrary, 
the  destruction  of  competitive  conditions  commonly 
leads  to  a  lessening  of  enterprise  and  of  efficiency.  As 
mankind  is  constituted,  the  spur  of  competition  is 
necessary  to  progress  and  to  the  development  of  enter- 
prising and  resourceful  men.  Industrial  monopolies 
have  not  been  the  cause  of  our  industrial  progress  ; 
they  have  but  reaped  the  fruits  of  progress  that  had 
taken  place  under  competitive  conditions. 

Moreover,  the  governmental  regulation  of  prices  of 
commodities  which  would  be  required  if  monopolies 
were  allowed  is  subject  to  grave  objections.  As  prices 
depend  largely  upon  wages,  governmental  regulation  of 
prices  probably  would  lead  to  indirect,  if  not  direct, 
regulation  of  wages  also.  But  it  is  clear  that  no  govern- 
ment officials  would  be  competent  to  adjust  the  prices 
of  commodities  or  the  wages  of  labor  from  time  to  time 
according  to  the  fluctuations  of  economic  conditions  and 
to  the  requirements  of  foreign  and  domestic  commerce. 
If  the  prices  thus  fixed  were  higher  than  those  that 
would  result  under  competitive  conditions,  the  com- 
munity would  lose  by  the  arrangement ;  but  if  they 


21 

were  lower,  enterprise  and  production  would  be  checked 
and  the  community  would  lose  equally.  For  these 
reasons  it  is  a  sound  governmental  policy  to  prohibit 
monopolies  and  combinations  destructive  of  reasonably 
competitive  conditions  in  production  or  in  trade,  but  to 
permit  combinations  that  increase  economy  or  efficiency 
without  destroying  reasonably  competitive  conditions, 
though  their  effect  may  be  in  some  degree  to  diminish 
competition. 

Excessive  luxury — Taxation. 

Though  a  majority  of  the  people  cannot  be  bene- 
fited by  taking  away  from  individuals  the  right 
to  accumulate  and  own  capital,  or  the  right 
to  obtain  a  profit  from  its  use,  it  is  practi- 
cable to  increase  the  welfare  of  the  nation 
and  the  income  of  the  masses  by  diminishing  the 
wasteful  consumption  of  labor  and  capital  in  luxurious 
living  and  in  display.  Undoubtedly  the  right  to  enjoy 
a  certain  measure  of  luxury  is  necessary  as  an  incentive 
to  enterprise,  industry  and  thrift  and  to  enable  literature, 
science  and  the  arts  to  flourish ;  but  extreme  luxury 
such  as  is  enjoyed  by  many  of  the  idle  rich  is  not 
necessary.  The  useful  members  of  the  community  and 
those  who  created  large  fortunes  by  their  enterprise, 
industry  or  thrift  rarely  desire  to  spend  their  wealth  in 
luxurious  living  and  in  display.  A  large  part  of  the  ex- 
treme luxury  and  display  among  the  rich  is  due  to  the 
wives  and  children  of  those  who  created  large  fortunes 
and  to  persons  who  acquired  their  wealth  by  inheritance. 
Luxurious  living  certainly  is  not  conducive  to  virtue  or 


22 

to  the  highest  culture  of  men  and  women.  On  the 
contrary,  the  experience  of  all  mankind  shows  that  it  is 
demoralizing  in  its  influence  and  is  an  unfailing  cause 
of  decadence. 

That  lavish  expenditure  by  the  rich  benefits  the 
masses  by  furnishing  employment  and  by  causing 
wealth  to  circulate  is  a  fallacy.  The  servants  of  the 
idle  rich  and  those  who  produce  luxuries  for  their 
consumption  or  otherwise  minister  to  their  pleasure, 
as  well  as  the  idle  rich  themselves,  must  be  supported 
by  the  labor  of  the  rest  of  the  community.  It  is  true 
that  any  readjustment  of  existing  conditions  may  cause 
temporary  hardship  to  some  of  the  people ;  but  if  part 
of  the  labor  and  capital  now  consumed  in  producing 
the  luxuries  of  the  rich  were  employed  in  creating 
additional  instruments  of  production  and  distribu- 
tion and  in  increasing  the  supply  of  necessaries  of  life 
and  simple  luxuries,  surely  the  cost  of  living  of  the 
masses  would  be  diminished. 

Though  prohibition  of  all  consumption  of  labor  and 
capital  in  producing  luxuries  for  the  rich,  or  in 
luxurious  living,  is  not  practicable  or  desirable,  the 
diminution  of  such  consumption  of  labor  and  capital  is 
both  practicable  and  desirable.  Moreover,  it  is  just  to 
impose  upon  those  who  consume  labor  and  capital 
without  benefit  to  the  community,  or  to  its  detriment,  a 
larger  share  of  the  expenses  of  government  than  upon 
those  who  by  their  savings  increase  the  wealth  of  the 
community.  For  these  reasons  part  of  the  necessary 
expenses  of  government  should  be  raised  by  taxing  the 
production  and  the  importation  of  the  luxuries  of  the 


23 

rich  and  the  consumption  of  labor  and  capital  in 
luxurious  living  or  in  display.  Such  consumption  of 
labor  and  capital  by  the  rich  varies  approximately 
according  to  the  value  of  the  houses  and  country  places 
they  occupy  or  maintain  and  to  the  number  of  servants 
they  employ  for  their  comfort,  pleasure,  or  display. 
Therefore,  the  consumption  of  labor  and  capital  in 
luxurious  living  and  display  could  be  taxed  with 
approximate  equality  by  imposing  upon  every  per- 
son a  special  tax  measured  by  the  value,  in  ex- 
cess of  a  reasonable  exemption,  of  the  house  or 
houses  and  lands  occupied  or  maintained  by  him  for 
comfort,  pleasure  or  display,  and  by  the  number  of 
servants  employed  by  him  for  similar  purposes.  How- 
ever, in  measuring  the  unproductive  consumption  of  labor 
and  capital  it  should  be  borne  in  mind  that  only  the 
original  creation  of  luxuries  involves  a  consumption  of 
labor  and  capital.  If  luxuries  are  of  a  permanent  char- 
acter, such  as  costly  houses,  works  of  art,  or  jewels, 
their  purchase  from  prior  owners  does  not  involve  an 
additional  consumption  of  labor  and  capital,  but  it  in- 
volves merely  an  exchange  of  wealth  between  the  pur- 
chaser and  the  seller. 

It  is  also  a  proper  exercise  of  the  power  of  taxation 
to  raise  part  of  the  necessary  expenses  of  government 
by  imposing  special  taxes  upon  succession  to  wealth  by 
inheritance,  or  by  gift,  and  upon  the  increase  of  land 
values  due,  not  to  improvements,  but  to  increase  of 
population  and  to  the  increased  needs  of  the  com- 
munity. The  unrestricted  right  to  enjoy  such  un- 
earned increase  or  wealth  is  not  necessary  as  an  in- 


24 

centive  to  enterprise,  industry,  or  thrift,  and  it  is  just 
that  some  part  of  this  unearned  wealth  should  be 
applied  so  as  to  reduce  the  burden  of  taxation  of  the 
rest  of  the  community. 

Such  taxation  would  embody  a  sounder  policy  than 
the  imposition  of  extra  or  progessive  taxes  upon  for- 
tunes or  upon  incomes  merely  on  account  of  their  size, 
without  regard  to  their  source  or  to  their  use.  Large 
fortunes  often  are  created  by  superior  enterprise,  in- 
dustry or  thrift  and,  as  pointed  out  above,  large  incomes 
do  not  necessarily  result  in  a  larger  consumption  of 
labor  and  capital  than  moderate  incomes.  On  the  con- 
trary, in  many  cases  such  accumulations  result  in 
large  savings  of  labor  and  capital  and  in  an  increase 
of  permanent  works  and  instruments  of  production  and 
distribution  beneficial  to  the  entire  community. 

It  is  clear  that  taxation  of  luxuries,  or  unearned 
wealth,  would  not  of  itself  increase  the  aggregate 
wealth  or  produce  of  the  nation  or  the  income  of  the 
masses.  Such  taxation  would  increase  the  wealth  and 
produce  of  the  nation  only  if  the  sums  raised  by  taxa- 
tion should  be  expended  by  the  State  more  productively 
or  more  usefully  than  they  would  have  been  expended 
by  those  from  whom  they  were  taken.  Such  taxation 
would  increase  the  income  of  the  masses  only  if  it 
should  relieve  the  masses  of  burdens  of  taxation  which, 
otherwise,  they  would  have  to  bear,  or  if  it  should  shift 
to  the  production  of  things  available  for  distribution 
among  the  masses  capital  and  labor  which,  but  for  such 
taxation,  would  be  employed  in  producing  luxuries,  or 
in  luxurious  living.  No  doubt,  sums  raised  by  taxation 


25 

may  be  expended  by  the  State  so  as  to  increase  the  pro- 
duce of  the  nation  and  the  welfare  of  the  masses  ;  but 
it  must  not  be  overlooked  that  every  such  expenditure 
would  involve  a  consumption  of  labor  and  capital  and 
would  diminish  the  supply  of  labor  and  capital  avail- 
able to  the  people  for  other  production. 

Socialism 

The  purpose  of  extreme  socialism  is  to  vest  all  capital 
or  instruments  of  production  and  distribution  in  the  State 
for  the  benefit  of  the  entire  community,  to  increase  the 
aggregate  production  of  necessaries  of  life  and  luxuries 
available  for  distribution  by  compelling  all  the  people  to 
work,  and  to  distribute  the  aggregate  produce  equitably 
among  all  members  of  the  community.  Even  if  it  were 
practicable  to  confiscate  and  to  vest  in  the  State  the 
capital  or  instruments  of  production  and  distribution 
now  owned  by  the  people,  an  attempt  to  attain  the  aims 
of  extreme  socialism  would  fail  and  would  prove  ruinous 
to  the  laboring  masses  as  well  as  to  the  present  owners 
of  capital,  unless  the  great  majority  of  the  people  could 
be  depended  on  to  work  industriously  and  fairly  for  the 
common  good,  and  unless  a  large  majority  of  the  voters 
could  be  depended  upon  always  to  keep  the  government 
in  the  hands  of  wise,  able  and  conscientious  men.  But  the 
experience  of  all  nations  in  all  times,  including  present 
experience  in  the  United  States,  shows  that  these  con- 
ditions cannot  be  fulfilled.  No  one,  except  those  whose 
eyes  are  blind  to  facts,  or  whose  judgment  is  clouded  by 
fanaticism,  can  avoid  the  conclusion  that  in  material 
affairs  as  well  as  in  politics  the  great  majority  of  the 


26 

people  are  guided  by  what  they  believe  to  be  their  own 
immediate  self-interest  and  not  by  altrnistic  considera- 
tions for  the  present  or  the  future  welfare  of  the  com- 
munity ;  that  it  would  be  wholly  impracticable  to  estab- 
lish and  to  maintain  a  government  competent  to  perform 
the  functions  required  by  advanced  socialism,  or  fit  to  be 
entrusted  with  power  to  control  the  liberty  of  action  and 
to  direct  the  labor  of  the  people  or  to  distribute  among  them 
the  produce  of  their  labor ;  that  production  under  the 
direction  or  control  of  government  officials  would  be 
highly  inefficient  and  wasteful,  and  that  distribution  of 
the  produce  by  government  officials  would  be  grossly 
unfair  and  sometimes  dishonest.  Certainly,  the  first 
step  of  those  who  are  earnest  in  their  advocacy  of  a 
socialistic  government  should  be  to  aid  by  their  votes  to 
break  down  political  ring  rule  and  to  elect  competent 
and  conscientious  legislators  and  government  officials. 
Whenever  the  government  shall  have  become  reason- 
ably fit  for  the  trust,  a  majority  of  the  voters  may  be 
willing  to  entrust  to  it  many  of  the  activities  and  powers 
proposed  by  socialists. 

Other  objections  to  a  socialistic  form  of  government 
are  that  it  would  destroy  incentive  to  enterprise,  indus- 
try and  thrift  and  that  it  would  arrest  civilization  by 
putting  an  end  to  the  conditions  necessary  to  enable 
literature,  science  and  the  arts  to  flourish.  Under  a 
system  of  government  that  does  not  recognize  and  pro- 
tect the  ownership  of  capital,  including  the  right  to  re- 
ceive a  profit  for  its  use,  practically  the  only  field  left 
open  to  men  of  constructive  ambition  and  enterprise 
would  be  the  field  of  politics. 


27 

How  the  share  of  the  masses  may  be  increased. 

Individual  effort  usually  has  for  its  aim  the  gain  or 
advantage  of  the  individual ;  and  even  when  its  aim  is 
altruistic  its  sphere  of  action  necessarily  is  limited. 
For  this  reason  many  of  the  steps  necessary  or  desir- 
able for  the  welfare  of  the  community  can  be  taken 
only  through  the  agency  of  the  government.  Edu- 
cation and  the  dissemination  of  useful  knowledge, 
the  care  of  the  sick,  blind,  or  otherwise  helpless 
and  the  protection  of  the  community  against  disease 
and  danger  always  have  been  regarded  as  proper  func- 
tions and  duties  of  government.  The  regulation  of 
child  labor  and  of  the  hours  of  labor  to  preserve  the 
health  of  the  people,  the  requirement  of  proper  safety 
appliances  in  the  industries,  compulsory  insurance 
against  accidents  and  disability,  and  other  similar  leg- 
islation for  the  general  welfare  are  equally  within  the 
proper  sphere  of  governmental  action.  In  many  cases 
such  legislation  leads  to  increased  efficiency  and  ulti- 
mately to  the  economic  gain  of  the  community ;  but 
economic  gain  is  not  the  only  test  of  the  propriety  of 
governmental  activity.  The  true  test  is  the  ultimate 
welfare  of  the  community.  Economic  gain  is  but  a 
means  to  that  end.  Undoubtedly  the  incompetency 
and  self-serving  character  of  many  of  the  legislators 
and  officials  in  control  of  the  government  is  a  serious 
objection  to  a  wide  extension  of  such  governmental 
activity  for  the  general  welfare,  and  this  objection  can 
be  met  only  by  the  election  of  better  men.  The  first 
step,  however,  must  be  to  improve  political  party  organi- 
zations, which,  in  many  cases,  are  merely  combinations 


28 

or  "  trusts "  of  politicians  to  obtain  for  their  own 
benefit  a  monopoly  of  the  business  of  governing  the 
country. 

All  that  can  be  consumed  or  enjoyed  by  the  entire 
community  is  the  aggregate  produce  of  labor  and 
capital,  less  so  much  of  this  produce  as  consists  of  in- 
struments of  production  and  distribution  and  other 
necessary  capital.  A  large  amount  of  labor  and  capital 
must  be  applied  to  the  production  of  houses,  manufact- 
uring plants,  railways  and  other  instruments  of  pro- 
duction and  distribution  required  to  meet  the 
immediate  requirements  of  the  nation.  Moreover,  due  re- 
gard for  the  future  welfare  of  the  nation  requires  that  at 
least  partial  provision  be  made  by  the  present  generation 
for  the  increased  amount  of  labor  which  probably  will 
be  required  to  produce  the  raw  materials  of  food,  -cloth- 
ing and  housing  as  population  increases  without  an 
equivalent  increase  of  the  supply  of  arable  land  and  of 
other  natural  resources.  But  it  should  not  be  over- 
looked that  every  withdrawal  of  labor  or  capital  from  the 
production  of  things  for  present  consumption  or  enjoy- 
ment must  diminish  the  supply  of  such  things  and 
must  increase  their  cost.  Unproductive  or  useless  con- 
sumption of  labor  or  capital  by  individuals  or  by  the 
government  involves  present  loss  to  the  community 
without  compensating  future  gain. 

All  that  can  be  given  to  labor  under  any  plan  of 
distribution  is  the  aggregate  produce  of  labor  and  capi- 
tal, less  so  much  of  this  produce  as  must  be  paid  for 
the  use  of  the  capital  as  an  inducement  to  its  creation 
and  to  its  supply.  Owners  of  capital  can  be  prevented 


29 

from  increasing  their  share  of  the  aggregate  produce 
through  monopolies  of  natural  resources  or  through 
monopolies  in  production,  distribution  or  trade  ;  but  at- 
tempts by  statutory  regulation  of  prices  or  otherwise  to 
reduce  their  share  below  the  profit  necessary  as  an  in- 
ducement to  enterprise,  industry  and  thrift  would  re- 
sult in  a  curtailment  of  production  and  would  prove  in- 
jurious to  the  masses. 

In  distributing  the  aggregate  produce  of  labor  and 
capital  the  principal  controversy  has  been  between  the 
owners  of  capital  on  the  one  side  and  the  laboring 
masses  on  the  other  side.  The  conflict  of  interest  among 
the  different  classes  of  laborers  has  given  rise  to  little 
controversy  and  seldom  has  been  appreciated  by  the 
laborers  themselves.  Yet  it  is  clear  that  each  class  of 
laborers  is  directly  affected  by  the  wages  paid  to  other 
laborers.  As  the  prices  of  commodities  are  determined 
largely  by  the  wages  of  labor  employed  in  their  pro- 
duction, an  increase  of  the  wages  of  any  class  of  laborers 
almost  invariably  raises  prices  and  increases  the  cost  of 
living.  The  division  of  the  aggregate  produce  of  the 
nation  between  labor  and  capital  presents  fewer  eco- 
nomic and  practical  difficulties  and  fewer  real  grounds 
for  controversy  than  the  division  of  the  share  of  the 
laboring  masses  among  the  laborers  themselves. 

To  a  limited  extent  the  share  of  the  masses  can  be 
increased  by  taxation  imposing  upon  the  rich  a  larger 
share  of  the  expenses  of  government,  and  by  causing 
part  of  the  labor  and  capital  employed  in  producing 
luxuries  for  the  rich  to  be  employed  so  as  to  increase 
the  supply  and  to  diminish  the  prices  of  things  avail- 


30 

able  for  distribution  among  the  masses ;  but  no  large 
increase  of  the  share  of  the  masses  can  be  secured  by 
these  means.  To  increase  largely  the  aggregate  in- 
come of  the  laboring  masses  it  is  necessary  to  increase 
the  aggregate  produce  of  labor  and  capital  out  of  which 
all  wages  and  all  profits  must  be  paid.  Such  increase 
of  the  aggregate  produce  of  the  nation  can  be  ob- 
tained only  by  two  means,  namely  (i)  by  an  increase 
of  labor  and  capital  applied  to  production,  and  (2)  by 
an  increase  of  efficiency  in  the  use  of  labor  and  capital. 
The  increase  of  the  aggregate  produce  would  inure  to- 
to  the  benefit  of  the  owners  of  capital  and  of  the  labor- 
ing masses  through  an  increase  of  profits  and  of  wages, 
or  through  a  reduction  of  the  prices  of  commodities.  As 
in  case  of  the  distribution  of  the  produce  of  labor  and 
capital  under  existing  conditions,  the  division  of  the 
increase  between  capital  and  labor  would  be  fixed  by 
supply  and  demand. 

Increase  of  labor. 

As  a  rule,  laborers  work  as  many  hours  a  day  as  is 
for  their  own  good  or  for  the  good  of  the  community. 
A  reasonable  amount  of  leisure  with  opportunity  for 
improvement  and  pleasure  is  necessary  to  secure 
efficient  workers  and  good  citizens,  without  whom  pop- 
ular government  cannot  endure.  However,  idleness, 
whether  due  to  dissipation,  laziness  or  strikes,  is  of 
benefit  to  no  one  and  is  injurious  to  the  masses  as  well 
as  to  the  rest  of  the  community,  because  it  diminishes 
the  aggregate  fund  available  for  distribution  and  be- 
cause it  increases  prices  and  the  cost  of  living.  Direct 


31 

governmental  action  compelling  the  idle  to  work, 
or  compelling  laborers  to  work  more  efficiently, 
is  not  practicable ;  but,  certainly,  it  is  the 
duty  of  the  government  to  protect  those  who 
are  willing  to  work  from  the  violence  and  threats 
of  others.  For  similar  reasons  the  law  should 
prohibit  monopolies  and  agreements  among  labor- 
ers and  regulations  of  unions  arbitrarily  limiting 
production  in  order  to  force  the  employment  of  more 
laborers.  Such  agreements,  like  combinations  of 
capital  in  restraint  of  production  or  trade,  are  injurious 
to  the  great  majority  of  the  people  because  diminishing 
production  and  increasing  prices. 

Much  loss  of  labor  and  capital  is  due  to  enforced 
idleness  of  laborers  resulting  from  inability  to  obtain 
steady  employment.  Therefore,  in  all  legislation  affect- 
ing business  and  commerce  the  urgent  need  of  stability 
should  be  recognized.  For  the  same  reason  it  would 
be  desirable  to  establish  public  labor  exchanges  or 
employment  bureaus ;  and  whenever  practicable,  with 
due  regard  to  economy,  necessary  or  desirable  public 
work,  such  as  the  construction  of  highways,  should  be 
prosecuted  at  times  when  there  is  a  slackened  demand 
for  labor. 

Increase  of  efficiency. 

The  most  effective  and  the  most  practicable  means 
of  increasing  the  aggregate  produce  of  the  nation,  of 
reducing  prices  and  of  diminishing  the  cost  of  living  is 
by  increasing  efficiency  and  economy  in  production 
and  in  distribution.  Enormous  sums — probably 


32 

thousands  of  millions  of  dollars  annually — could  be 
saved  through  greater  efficiency  and  economy  in  the 
operation  of  farms,  factories,  railways  and  mines,  in  the 
construction  of  buildings  and  of  other  permanent 
works,  and  in  the  distribution  of  the  produce  of  in- 
dustry among  consumers. 

The  problem  of  increasing  efficiency  and  economy 
is  largely  educational ;  but  progress  toward  the  desired 
end  can  be  made  only  through  painstaking  effort,  and, 
in  many  cases,  cooperation  on  the  part  of  the  laboring 
masses  or  of  the  consuming  public  is  essential.  Much 
inefficiency  and  waste  in  production  is  due  to  the  lack 
of  interest  of  laborers  and  to  the  requirements  of  labor 
unions.  Much  inefficiency  and  waste  in  distribution  is 
due  to  the  extravagance,  carelessness  and  supineness  of 
consumers.  A  large  part  of  the  possible  gain  through 
increased  efficiency  and  economy  in  production  can  be 
attained  only  when  the  laboring  masses  realize  that 
their  collective  income  cannot  be  materially  increased 
except  by  increasing  the  aggregate  produce  of  their 
labor  and  that  an  increase  of  the  wages  of  a  particular 
class  of  laborers  usually  is  at  the  expense  of  the  rest  of 
the  community.  A  large  part  of  the  possible  gain 
through  increased  efficiency  and  economy  in  distribu- 
tion can  be  attained  only  when  the  consuming  public 
realize  that  all  rents,  wages,  advertising  expenses  and 
other  costs  of  shopkeepers  and  middlemen,  as  well  as 
their  profits,  must  be  paid  by  consumers  as  part  of  the 
cost  of  the  things  they  buy  and  that  only  by  their  own 
organized  efforts  can  they  reduce  this  factor  in  the  high 
cost  of  living.  The  most  effective  way  of  supplying 


33 

the  necessary  incentive  to  an  increase  of  the  efficiency 
of  laborers  is  by  paying  for  labor  according  to  its  pro- 
duce and  by  establishing  an  adequate  system  of  profit- 
sharing.  The  most  effective  way  of  increasing  effici- 
ency and  economy  of  distribution  among  consumers  is 
by  establishing  a  properly  organized  system  of  coopera- 
tive shops  and  markets. 

The  administration  of  nearly  all  departments  of  the 
national,  state  and  municipal  governments  is  a  flagrant 
instance  of  inefficiency  and  waste  that  can  be  corrected 
only  by  cooperation  of  a  majority  of  the  members  of  the 
community.  A  distinguished  senator  is  said  to  have 
stated  publicly  that  three  hundred  million  dollars  could 
be  saved  to  the  people  annually  by  more  efficient  ad- 
ministration of  the  departments  of  the  national  govern- 
ment. This  probably  was  no  exaggeration.  Similar 
inefficiency  and  waste  prevail  in  the  administration  of 
the  various  state,  county  and  municipal  governments 
throughout  the  country.  The  Bureau  of  Municipal 
Research  in  the  city  of  New  York  and  similar  societies 
in  other  cities  are  rendering  to  the  people  an  important 
service  by  their  efforts  to  increase  efficiency  and  economy 
in  the  administration  of  municipal  affairs,  and  these 
efforts  deserve  the  support  of  all  who  have  the  welfare 
of  the  people  at  heart.  Certainly  the  masses  can  do 
themselves  no  greater  service  than  by  electing  to  office 
capable  and  conscientious  men  and  by  insisting  upon 
efficient  as  well  as  honest  administration  of  public 
affairs. 

Although  the  administration  of  the  departments 
of  the  government  generally  is  inefficient  and 


34 

wasteful,  increase  of  efficiency  and  economy  among 
the  people  can  be  aided  effectively  by  an  exten- 
sion of  the  educational  activities  of  the  govern- 
ment. Thus,  the  efforts  of  the  national  and  state 
governments  to  increase  efficiency  in  agriculture  could 
advantageously  be  increased  and  could  be  made  more 
effective  by  the  appointment  of  travelling  expert 
teachers.  Similarly,  it  would  be  desirable  to  establish 
bureaus  of  efficiency  and  economy  to  aid  by  the  best 
scientific  and  expert  advice  the  increase  of  efficiency  and 
economy  in  the  industries  and  the  arts  and  in  the  dis- 
tribution of  foodstuffs  and  other  necessary  articles  of 
domestic  consumption. 

There  is  no  more  effective  way  of  increasing  effici- 
ency and  the  income  and  welfare  of  the  entire  commun- 
ity than  by  the  vocational  training  of  children.  As 
education  is  one  of  the  most  important  functions  of  gov- 
ernment, the  State  shotfld  require  all  children  to  be 
trained  in  some  useful  occupation  and  should  provide 
the  opportunity  for  such  training  whenever  parents  are 
unable  to  do  so.  If  necessary,  the  recipients  of  such 
training  could  be  required  gradually  to  repay  its  cost  to 
the  State  out  of  their  subsequent  earnings. 

Another  highly  desirable  educational  activity  of  the 
government  would  be  to  teach  the  people  to  use  their 
incomes  more  efficiently  and  economically.  Hundreds 
of  millions  of  dollars  are  wasted  by  the  people  annually 
through  mere  ignorance  and  incompetence  in  household 
economy  and  especially  in  the  selection  and  cooking  of 
food.  By  greater  efficiency  in  the  use  of  their  incomes 
the  masses  could  obtain  the  equivalent  of  a  substantial 


35 

increase  of  their  wages.  Besides,  unwholesome,  badly 
prepared  and  unpalatable  food  is  one  of  the  principal 
causes  of  ill  health,  of  mental  and  physical  in- 
efficiency and  of  domestic  discontent.  Every 
girl  child  in  the  public  schools  should  receive  thorough 
training  in  the  selection  and  preparation  of  food  and  in 
household  economy  generally. 

Excessive  use  of  intoxicating  liquor  is  the  cause  of 
an  enormous  amount  of  inefficiency  and  waste. 
Whether  the  best  way  to  correct  this  evil  is  by  absolute 
legal  prohibition  may  be  a  debatable  question ;  but 
there  can  be  no  doubt  that  the  enforcement  of  laws 
designed  to  diminish  indulgence  in  alcoholic  drink  is 
urgently  needed  to  protect  the  community  from  the 
resulting  loss  of  production  as  well  as  to  protect  the 
intemperate  and  their  families  and  to  diminish  degen- 
eration and  crime. 

Readjustment  required  by  increase  of  efficiency. 

Increase  of  efficiency  and  avoidance  of  waste  in  pro- 
duction or  distribution  result  in  a  reduction  of  costs 
unless  there  be  an  increase  of  wages  equivalent  to  the 
cost  of  the  labor  saved.  But  unless  those  whose  labor 
is  saved  can  find  other  productive  employment,  there 
would  be  no  increase  of  the  aggregate  production,  and 
the  community  as  a  whole  would  gain  nothing.  The 
reduction  of  the  costs  of  production  or  distribution 
would  be  at  the  expense  of  those  laborers  whose  ser- 
vices were  dispensed  with.  It  is  only  when  labor  or 
capital  saved  through  increase  of  efficiency  or  through 
the  avoidance  of  waste  is  employed  in  additional  pro- 


36 

duction  that  the  community  as  a  whole  is  benefited. 
Similarly,  a  reduction  of  the  amount  of  labor  and  capital 
employed  in  producing  the  luxuries  of  the  rich  would 
not  benefit  the  community  unless  the  labor  and  the 
capital  withdrawn  from  such  employment  were  em- 
ployed in  a  manner  more  beneficial  to  the  community. 
Neither  labor  nor  capital  can  be  shifted  easily  from 
an  industry  of  one  class  to  an  industry  of  another  class. 
A  watch-maker  cannot  easily  become  a  carpenter  or  a 
boiler-maker,  and  a  butler  cannot  easily  become  a  farmer 
or  a  cook.  Even  when  suitable  employment  can  be  found, 
the  shifting  of  labor  from  place  to  place  or  from  occupation 
to  occupation  generally  is  attended  to  some  extent  by 
enforced  idleness  and  loss.  For  this  reason  any  sudden 
large  increase  of  efficiency  in  production  and  distribu- 
tion, or  lessening  of  luxury  among  the  rich,  may  result 
in  temporary  suffering  of  part  of  the  people.  At  the  be- 
ginning of  the  nineteenth  century  the  introduction  of 
the  power  loom  and  of  other  labor-saving  machinery 
resulted  in  intense  misery  among  the  working  classes 
in  England,  though  the  resulting  increase  of  pro- 
duction proved  ultimately  to  be  of  great  benefit  to  the 
masses.  In  the  United  States  there  still  remains 
ample  opportunity  for  the  productive  employment  of 
all  available  labor.  Unless  enterprise  is  arrested  by 
financial  disturbances  or  by  loss  of  confidence  in  the 
security  and  stability  of  investments,  labor  saved 
through  increased  efficiency  or  economy  in  production 
and  distribution  or  through  a  lessening  of  luxury  would 
not  remain  idle,  but  soon  would  find  employment  in  the 
same  industry  or  in  some  other  industry,  and  the  whole 


37 

people  would  be  benefited  by  the  resulting  increase  of 
production.  In  any  event,  the  ultimate  welfare  of  the 
community  cannot  be  sacrificed  to  avoid  temporary 
suffering  of  part  of  the  people,  or  even  to  prevent 
the  pauperizing  of  those  who  are  too  old  to  find  new 
means  of  earning  a  livelihood. 

Of  course,  the  profitable  production  of  each  kind  of 
article  is  limited  by  the  demand  of  consumers  and  by 
their  means  of  paying  for  the  things  they  desire.  But, 
though  the  demand  for  things  of  a  particular  class  may 
be  limited,  the  desire  for  things  or  services  to  be  con- 
sumed or  enjoyed  always  will  exceed  the  aggregate 
supply ;  and  the  aggregate  means  of  the  whole  people  to 
pay  for  the  things  or  services  they  desire  is  measured 
by  the  aggregate  supply  of  things  and  services  that  have 
an  exchange  value.  So  long  as  the  supply  of  each 
kind  of  article  or  service  is  adjusted  according  to  the  de- 
mand therefor,  the  aggregate  supply  of  things  and 
services  to  be  consumed  or  enjoyed  never  can  exceed  the 
aggregate  demands  of  the  people  or  their  aggregate 
means  of  paying  for  the  things  demanded. 

Effects  of  international  trade. 

Comparatively,  only  a  small  part  of  the  aggregate 
produce  of  the  labor  of  a  nation  can  be  exported,  and 
only  a  small  part  of  its  requirements  can  be  imported. 
Each  nation  must  produce  by  the  labor  of  its  own  people 
its  buildings  and  other  improvements  of  land,  its  rail- 
roads and  other  fixed  plants,  and  it  must  furnish  all  the 
labor  of  transportation  and  distribution  within  the  nation 
and  practically  all  other  labor,  except  only  that  entering 


38 

into  the  production  of  articles  imported  and  the  trans- 
portation of  these  articles  to  its  shores.  It  is  true  that 
the  title  to  fixed  property  which  cannot  be  transported 
and  shares  in  companies  owing  fixed  property,  may  be 
sold  to  foreign  nations  ;  but  the  effect  of  such  a  sale  of 
fixed  property  or  of  interests  therein  is  merely  to  confer 
upon  the  foreign  purchasers  a  right  to  receive  for  the 
use  of  the  property  profits  or  dividends  representing 
part  of  the  future  produce  of  the  nation  in  which  the 
property  is  located.  The  property  itself  remains  an  in- 
strument of  production  or  distribution  of  this  nation 
and  the  share  of  its  produce  receivable  by  the  laboring 
masses  is  not  affected,  except,  indirectly,  by  diminishing 
the  accumulation  of  capital. 

By  borrowing  from  foreign  nations,  a  nation  may  defer 
making  payment  for  imports,  and  it  may  obtain  the  means 
of  paying  for  imports  by  selling  to  foreign  nations  fixed 
property  or  interests  therein,  such  as  shares  in  manu- 
facturing or  railway  companies.  In  case  of  imports 
upon  credit  the  interest  and  principal  of  the  sums  bor- 
rowed become  a  charge  upon  the  future  produce  of  the 
nation  and  ultimately  must  be  paid  therefrom.  Simil- 
arly, in  case  of  a  sale  of  property  or  of  an  interest 
therein,  without  physical  export,  the  future  produce  of 
the  nation  becomes  charged  with  the  payment  to  the 
foreign  owners  of  profits  or  dividends  for  the  use  of  the 
property.  Subject  to  the  power  of  a  nation  thus  to  ob- 
tain imports  upon  credit  or  by  creating  charges  upon 
its  future  produce,  international  trade  resolves  itself 
into  an  exchange  among  nations  of  the  produce  of 
their  labor  and  capital.  The  only  way  in  which  a 


39 

nation  can  make  ultimate  payment  for  property  im- 
ported, or  can  discharge  its  liabilities  to  other  nations, 
is  by  exports  of  property.  The  exports  of  a  nation 
may  include  any  gold  or  silver  not  needed  by  the  na- 
tion as  a  medium  of  exchange  or  as  bank  reserves  ;  but 
only  comparatively  small  balances  can  be  settled  by 
exports  of  gold  or  silver. 

International  transactions  are  adjusted  and  cleared 
through  banking  transactions  so  that  the  aggregate 
exports  and  borrowings  of  each  nation  are  made  avail- 
able as  a  means  of  paying  for  its  imports  from  whatever 
source  derived  and  of  discharging  any  of  its  obligations 
to  foreigners.  Thus  imports  of  coffee  from  Brazil  or  of 
silks  from  France  may  be  paid  for  out  of  the  proceeds 
of  cotton  exported  to  England  or  out  of  sums  borrowed 
in  Holland  to  build  a  railroad.  When  capital  is  bor- 
rowed abroad  to  build  a  railroad  in  the  United  States 
the  labor  and  materials  employed  in  construction 
are  not  obtained  abroad,  nor  is  money  imported ; 
but  bank  credit  is  obtained  which  is  transferred  in  pay- 
ment for  the  labor  and  materials  of  construction  fur- 
nished in  the  United  States,  and  ultimately  this  credit 
is  used  to  pay  for  imports  of  merchandise  or  to  pay 
obligations  incurred  abroad.  The  ultimate  result  is 
that  the  sums  borrowed  abroad  for  the  construction  of 
permanent  works  are  used  to  pay  for  consumable  im- 
ports and  for  expenditures  abroad,  while  a  larger  part 
of  the  labor  of  the  people  than  otherwise  would  be 
practicable  is  applied  to  the  construction  of  permanent 
works  at  home. 

It  has  been  estimated  that  approximately  six  thou- 


40 

sand  million  dollars  of  bonds  and  stocks  of  companies 
holding  property  in  the  United  States  are  owned  by 
foreigners  while  comparatively  few  foreign  bonds  and 
stocks  are  owned  in  the  United  States.  This  indicates 
that  the  aggregate  sum  of  the  imports  of  the  United 
States,  expenditures  of  Americans  living  or  travelling 
abroad,  remittances  of  immigrants,  interest  and  divi- 
dends due  to  foreigners,  freight  and  steamship  fares 
and  other  payments  and  liabilities  to  foreigners  has 
exceeded,  by  the  cost  of  these  bonds  and  stocks,  the 
aggregate  sum  of  the  exports  from  the  United  States 
and  credits  otherwise  obtained  against  foreigners. 
However,  it  is  undoubtedly  true  that  in  the  mean- 
time the  productive  property  and  wealth  of  the  United 
States  have  been  increased  by  the  labor  of  its  people 
vastly  more  than  the  six  thousand  million  dollars 
represented  by  stocks  and  bonds  held  abroad.  In  recent 
years  exports  of  raw  materials  and  merchandise  from 
the  United  States  have  exceeded  imports  by  more 
than  five  hundred  million  dollars  annually;  but  the 
expenditures  of  Americans  living  or  travelling  abroad, 
remittances  of  immigrants,  and  liabilities  incurred  to 
foreigners  for  interest,  etc.,  probably  were  substantially 
larger  than  this  excess  of  trade  exports  over  imports. 
In  the  meantime,  however,  the  net  aggregate  wealth  of 
the  United  States  has  been  increased  by  the  construc- 
tion of  railways,  factories,  houses  and  numberless  other 
permanent  works  representing  savings  of  the  produce 
of  labor. 

As  a  nation  receives  for  its  exports  no  more  than 
their  equivalent  and  as  ultimately  it  must  pay  out  of 


41 

its  produce  the  equivalent  of  its  imports,  neither  exports 
nor  imports  directly  increase  the  aggregate  fund  avail- 
able for  the  payment  of  wages  of  labor  and  profits  of 
capital ;  but  international  trade  may  increase  this  fund 
indirectly  and  may  benefit  a  nation  in  various  ways. 
Thus  it  enables  each  nation  to  employ  its  labor  and 
capital  in  producing  for  export  those  articles  which  by 
reason  of  climate,  supply  of  raw  materials,  or  other 
cause,  it  can  produce  to  greatest  advantage,  while  obtain- 
ing in  exchange  necessary  or  desired  articles  which  for 
any  reason  it  cannot  produce  as  advantageously  as  the 
articles  exported,  or  which  it  cannot  produce  at  all. 
International  trade  also  enables  a  nation  by  obtaining 
imports  upon  credit  to  apply  to  the  creation  of  per- 
manent works  and  instruments  of  production  and 
distribution  a  greater  part  of  its  labor  and  capital 
than  otherwise  would  be  practicable.  Furthermore, 
it  enables  a  nation  which  cannot  increase  largely  its 
productive  property  at  home  to  export  surplus  produce 
or  wealth  in  exchange  for  interests  in  productive  prop- 
erty or  obligations  of  other  nations  and  thus  to  obtain 
a  charge  upon  their  produce. 

Exports  and  imports  being  wholly  voluntary  are  made 
only  when  immediately  advantageous  to  both  exporting 
and  importing  nations.  Though  in  some  instances  inter- 
national competition  may  prove  injurious  to  a  nation  by 
causing  a  disarrangement  of  industries,  yet,  as  a  rule,  an 
international  market  is  more  stable  than  a  market  con- 
fined to  the  producing  country,  and,  therefore,  it  tends  to 
insure  more  steady  employment  of  labor  and  greater  sta- 
bility of  prices  and  of  wages.  Other  important  advantages 


42 

of  international  trade  are  that  by  producing  competition 
and  rivalry  among  nations  it  increases  efficiency  of  pro- 
duction and  distribution  and  by  promoting  intercourse 
among  peoples  it  broadens  their  intelligence  and  in- 
creases civilization. 

Protective  tariffs. 

The  produce  or  income  of  labor  and  capital  varies 
among  nations  according  to  their  natural  resources, 
their  supply  of  capital  and  their  efficiency  of  pro- 
duction, including  the  skill  and  industry  of  laborers 
and  the  intelligence  of  management.  Assuming  the 
profits  of  capital  to  be  equal,  the  true  income  of  labor 
varies  among  nations  according  to  the  productivity  of 
labor,  whatever  scale  of  wages  and  of  prices  may  pre- 
vail. 

It  has  been  asserted  that  a  high  or  protective  tariff 
benefits  the  laboring  masses  in  the  United  States  by 
protecting  them  against  competition  of  the  low-priced 
labor  of  foreign  countries.  Whatever  may  be  the  effect 
of  a  high  or  protective  tariff  upon  prices  and  upon 
wages  measured  in  money,  it  is  clear  that  it  cannot 
increase  the  aggregate  produce  of  a  nation  or  the  real 
wages  or  income  of  the  laboring  masses,  except  by 
providing  productive  employment  for  labor  which  other- 
wise could  not  be  employed  to  equal  advantage.  Under 
no  system  of  tariffs  or  of  taxation  can  the  aggregate 
wages  of  labor  in  a  country  exceed  the  aggregate 
produce  of  this  labor,  less  the  profit  which  must  be 
paid  for  the  use  of  capital  employed  in  production  and 
distribution.  So  far  as  a  protective  tariff  increases  the 


43 

prices  of  things  consumed  by  the  laboring  masses, 
whether  these  things  be  imported  or  produced  at  home, 
it  diminishes  the  true  income  of  the  masses  by  increas- 
ing their  cost  of  living.  So  far  as  it  restricts  imports 
of  articles  and  forces  their  production  at  home  by  the 
use  of  labor  and  capital  which  could  be  employed  more 
efficiently  in  other  production,  it  tends  to  waste  labor 
and  to  diminish  the  aggregate  produce  of  the  country 
available  for  distribution. 

However,  in  some  instances,  high  import  duties  may 
benefit  the  masses  indirectly.  Thus  in  some  cases 
it  may  be  beneficial  and  a  wise  exercise  of  govern- 
mental power  to  aid,  at  the  expense  of  the  nation, 
the  starting  or  maintaining  of  industries  which 
otherwise  could  not  be  started  or  maintained  by 
reason  of  foreign  competition,  as,  for  example,  if 
the  establishment  of  these  industries  would  furnish 
productive  employment  to  labor  which  could  not  be 
employed  more  efficiently  in  other  production,  or  if  it 
would  render  the  country  less  dependent  upon  foreign 
supply  of  certain  necessary  articles,  or  if  by  diversify- 
ing the  industries  of  the  country  it  would  give  greater 
stability  to  production  and  to  the  employment  of  labor 
in  the  aggregate.  Unfortunately,  protective  tariffs  in 
the  United  States  usually  have  not  been  designed  to 
benefit  the  whole  people  or  to  carry  out  a  well  con- 
sidered and  consistent  national  policy,  but  have  been 
imposed  to  benefit  certain  sections  of  the  country,  or 
certain  classes  of  manufacturers  or  laborers  at  the  ex- 
pense of  the  rest  of  the  community. 

Labor  and  capital  generally  are  more  productive  in 


44: 

the  United  States  than  in  the  older  and  more  densely 
populated  countries  of  Europe,  because  in  the  United 
States  natural  resources  are  more  abundant  in  propor- 
tion to  population,  more  extensive  use  is  made  of 
machinery  and  labor-saving  devices,  greater  economy 
is  practised  in  the  use  of  labor  and,  in  many  cases,  pro- 
ducers and  laborers  work  with  greater  energy  and 
rapidity.  In  some  instances  natural  advantages  are  so 
great  and  efficiency  of  production  is  so  high  in  the 
United  States  that  articles  can  be  produced  at  lower 
cost  than  in  countries  where  wages  and  profits  are 
much  lower.  Furthermore,  owing  to  the  more  rapid 
industrial  development  of  the  United  States,  labor 
and  capital  applied  to  the  construction  of 
permanent  works  and  instruments  of  production 
and  distribution  have  been  more  productive  of 
wealth  in  the  United  States  than  in  Europe. 
However,  by  reason  of  the  fact  that  wages  and  profits 
are  much  higher  in  the  United  States  than  in  Europe, 
costs  of  production  and  prices  of  commodities,  in  most 
cases,  are  higher  than  in  Europe,  though  labor  and 
capital  are  more  productive. 

The  high  scale  of  wages  and  of  profits  in  the  United 
States  has  been  due  in  great  measure  to  the  large 
absorption  of  labor  and  capital,  having  regard  to  their 
supply,  in  the  construction  of  permanent  works  and  in- 
struments of  production  and  distribution,  such  as  houses, 
factories  and  railway  lines.  By  reason  of  the  prospective 
value  of  such  properties  for  futiire  use,  their  construction 
has  been  highly  profitable  and  has  warranted  the  pay- 
ment of  high  wages  for  labor  and  high  interest  for  bor- 


45 

rowed  capital ;  but  it  has  not  resulted  in  an  equivalent  im- 
mediate increase  of  necessaries  of  life  and  of  other  consum- 
able commodities  and,  by  raising  the  standard  of  wages 
and  profits,  it  has  increased  the  cost  of  production  and  the 
prices  of  such  commodities.  The  necessaries  of  life  and 
other  commodities  consumed  by  all  those  engaged  in  the 
production  of  permanent  works  and  instruments  of  pro- 
duction and  distribution  had  to  be  created  by  the  rest  of  the 
community,  except  so  far  as  production  at  home  was  re- 
lieved by  the  importation  of  commodities  from  foreign 
nations  upon  credit,  or  in  exchange  for  stocks  and  bonds. 
For  these  reasons  wages  and  profits,  measured  in 
money,  do  not  furnish  a  sound  basis  for  a  comparison 
between  the  real  income  of  labor  and  capital  in  the 
United  States  and  their  real  income  in  Europe.  The 
real  income  of  labor  and  capital,  in  each  case,  can  be 
measured  only  by  the  purchasing  power  of  money  wages 
and  money  profits,  having  regard  to  the  prevailing 
prices  of  commodities  and  to  the  cost  of  living.  Be- 
cause of  the  higher  scale  of  wages  and  of  profits  prevail- 
ing in  the  United  States,  costs  of  production  and  prices  of 
commodities  generally  are  higher  than  in  Europe  ;  but, 
owing  to  the  greater  productivity  of  labor  and  capital  in 
the  United  States,  costs  of  production  and  prices  are  not 
as  much  higher  as  are  money  wages  and  money  profits. 
Consequently,  in  the  United  States  the  real  income  of 
labor  and  capital  is  larger  than  in  Europe,  though  not 
as  much  larger  as  are  wages  and  profits  measured  in 
money. 

[10799] 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 


DAY    AND    TO     $t.OO    ON     THE    SEVENTH     DAY 
OVERDUE. 

*W    6     J93i 

NOV    7    1938 

APff   3    ic\/<n 

m    A    1942 

t 

LD  21-95w-7,'37 

UNIVERSITY  OF  CALIFORNIA  LIBRARY 


